Biz Break: Silicon Valley looks to Asia for growth

Japan's Tokyo Electron chairman Tetsuro Higashi (L) shakes hands with US semiconductor giant Applied Materials CEO Gary Dickerson (R) after they agreed to merge next year at a press conference at the Tokyo Electron headquarters in Tokyo on September 24, 2013. (YOSHIKAZU TSUNO/AFP/Getty Images)

Today: Applied Materials merges with Japanese competitor, Facebook and Twitter get access to a certain swath of China, and IDC forecasts China success for Apple (AAPL).

The Lead: Applied Materials moves to Japan, Facebook and Apple focus on China

Asia's importance to the future of Silicon Valley was underlined more than once Tuesday: Applied Materials attempted to form a chip-equipment monolith by merging with a Japanese rival, Facebook received a bounce after gaining (a slight) entry into China, and IDC predicted strong growth for Apple in the region.

Applied Materials' deal with Tokyo Electron combines the world's No. 1 and No. 3 chip-equipment companies in the world, which will have dual headquarters in Japan and Santa Clara while incorporating in the Netherlands. The combined effort, which will have a new name that has not yet been announced, has a market capitalization of about $29 billion, with Tokyo Electron valued at about $9 billion.

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"We believe the combination will accelerate our momentum for profitable growth, increase the value we deliver to shareholders and create great opportunities for our employees," Gary Dickerson said in Tuesday's news release. Dickerson was named CEO of Applied Materials just last month, and will now serve as CEO of the new venture, while Tokyo Electron CEO Tetsuro Higashi will be chairman.

The chip industry has faced turmoil globally in the past couple of years, as consumers opt for mobile computing devices that use smaller, cheaper chips that are easier to produce. Applied Materials' revenues dropped from $10 billion in 2011 to $8.1 billion in 2012, when Silicon Valley's chip industry declined overall.

"It's a defensive strategy because R&D costs are going up and the number of customers is going down," BGC Partners manager of Japanese equity sales Amir Anvarzadeh told Bloomberg News. "This tells you there's a problem in the industry."

Analysts said the deal -- reportedly the largest foreign move for a Japanese company in six years -- could help to weather the current storm. S&P Capital IQ analyst Angelo Zino raised his price target for the stock from $17 to $21, while others said the combined company will be a stronger one than the two worthy companies that will create it.

"They have the highest profit margins, they have the best balance sheets, they make money through thick and thin," David Rubenstein, senior analyst at Advanced Research Japan, told Reuters. "So they are not desperate, but they are hungry for earnings growth and this is one way they can do it."

Shares in Applied Material roared 9.1 percent higher Tuesday to close at $17.44; Applied investors will receive an equal amount of shares in the new company, while Tokyo Electron investors will receive 3.25 shares for every share of that company if the deal is approved.

Wall Street slipped to losses late in Tuesday's session, but tech stocks still managed to hold on to their overall gains: The tech-heavy Nasdaq was the only major U.S. index to gain while the SV150 increased 0.2 percent thanks to gains from Yahoo (YHOO) and social-media companies.

And the widely watched Standard & Poor's 500 index: Down 4.42, or 0.26 percent, to 1,697.42

Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.